Entrepreneurship plays a critical role in the formation of any economy; it is the critical agent in the productive creation and destruction cycle necessary for any dynamic economy. Public policy creates an institutional environment that can encourage or discourage productive entrepreneurship. Government intervention, though, can also have an affect on societal norms and cultural attitudes.

In the report, Drs. Zoltan Acs and Lazlo Szerb give an overview of a way to measure entrepreneurship by accounting for these complex institutional and demographic aspects. They draw their data from a range of sources, including Heritage’s Index of Economic Freedom.

Overall, the GEDI ranks the U.S. third—falling behind Denmark and Canada. More telling for the U.S., though, is its ranking on the sub-indices used to construct the overall index. These sub-indexes and the components that go into them can identify where there are “bottlenecks.” A bottleneck is a weakness that hinders entrepreneurship despite strengths in other areas of the economy.

The report highlights bottlenecks in the U.S. On the Activities sub-index, we rank number 8. The variables for “Cultural support, Tech Sector, and High Growth emerge as the chief weak points” in the U.S.

There seems to be a troubling trend developing in the U.S. of crowding out productive entrepreneurship and channeling it toward unproductive entrepreneurship. While other countries have been helping the entrepreneurial spirit thrive, the U.S. has lagged on basic reforms such as patent law reforms, tax reform, tort reform, and immigration/visa law reforms. Instead, lawmakers are trying to cut health care costs, find new energy solutions, and “fix” the housing market, financial market, and just about every other market. This also creates perverse incentives whereby it is more profitable to lobby the government for redistributed wealth than to create wealth by innovating new useful products, services, or processes.

The GEDI gives countries a new tool to assess economic development. It can hopefully be an early warning sign and provide insight where policy could be most constructive. The full index, methodology, rankings, and discussion will be published later this year by Edger Elgar Publishing. A book launch for the index will be held at The Heritage Foundation in January 2011 followed by a conference jointly sponsored by George Mason University, the Mercatus Center, and Heritage to discuss the index, the state of entrepreneurship data collection at the country level, and the potential uses of the index to address policy questions. Stay tuned!

Karen Campbell is a policy analyst in macroeconomics at The Heritage Foundation's Center for Data Analysis. In this position, Campbell will be designing and maintaining the center's several computer models of the U.S. economy.

Join The Discussion

This does not surprise me! This is what happens with too much GOP leadership! In modern America the DNC seems to be corrupted as well! Indeed its time for a third party! Is not America a place of choice? It time to think out of the box and get our heads out of the sand! Lately it doesn't matter how I vote. The difference is vaseline! I ain't never voting republican again! Thats for sure!

I always find it amazing when non entrepreneur think tanks and academics team up with a government agency, the SBA, and analyze something they have never done nor have the intestinal fortitude to engage in. While the statistical analysis may have some merit, only if divided in half for assessing causal factors, without direct entrepreneur/small business input the stats are almost meaningless to assess conditions or create policy.

The researches take two or three paragraphs just to try to figure out and document the difference between an entrepreneur and a small business. The former creates the latter in 99% of the cases. Period.

The issue with this type of analysis is that politicians take this as either a confirmation that their policies are working or that the other party's policies are not working. In the first instance they create more of their seemingly good policy and in the latter instance they change all of the rules, we, entrepreneurs and small business owners have to exist in.

Studies without the inclusion of the subjects in the subject matter are pretty much worthless…

“Is the U.S. Still the Land of Opportunity?” Not anymore in the free market, thanks to the house and senates since overhaul in 2006, Thanks to the destructive leadership going on behind our backs in the past and present, It is now obama's land of opportunity in the unproductive market of government waste, concluding logically all will collapse… if it isn't stopped!

Fundamental to innovation and entrepreneurship are educated people and available funding for good ideas in an legal environment where ideas can be protected. The US fell due to schooling failures and distractions caused by financial sector failure and unemployment. Fix education by more parental involvement and graduate more students versed in innovation and the US can reclaim number 1. More employment results from new products. Promoting better health in schools also results in better brains more receptive to learning.

Fixing a disfunctional congress would help too. More what's best for US and less what's best for lobbiests and party interests.

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